"We Haven't Seen Anything Yet, So Hold Your Long-Term Bag:" Qiao Wang
In this week’s podcast episode, we speak with long-time crypto investor Qiao Wang. Wang is a partner at the DeFi Alliance and former head of product at Messari. Unlike many Bitcoiners who get into crypto because of their ideological views, or Ethereans attracted by the possibility of building decentralized apps, Wang had been a quant trader for 10 years when he first learned about Bitcoin, and it was the asset’s volatility and potential upside what drew him in. Years later, he’s still actively trading.
We talk about his portfolio and which coins look the most promising. Among his current big bets are Sushiswap and Terra —but not for the same reasons. As much as he loves DeFi, he believes there’s a bigger opportunity in centralized exchange coins, at least in the short term.
He looks at all sorts of metrics to come to his trading conclusions. In the end though, he says, the market is purely driven by memes and Twitter influencers. But that’s not unique to crypto. He believes traditional metrics like P/E are also memes and that equity investors use whatever they can to justify valuations.
About the current bull market, Wang says he’s 90% confident prices will go a lot higher. And while he doesn’t like to give price estimates, he still told me what he thinks the top for BTC and ETH will be for this cycle.
The podcast was led by Camila Russo, and edited by Alp Gasimov.
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Qiao Wang: I did quant trading for almost 10 years before working professionally full-time in this space as head of product at Messari in 2018. During my time as a trader, well, I guess the kind of trading that I did was sort of sitting on the intersection of finance and technology, so something like Bitcoin naturally drew my attention.
I mean, I first started to learn about Bitcoin in 2011. My friend talked me out of investing in Bitcoin. I'm still mad at him, he's not my friend anymore. But I learned about Bitcoin when, I think there was a day where Bitcoin dropped like 90% and it was like, what kind of asset, what kind of penny stock-like scam is this? So I decided to take a look. But I just didn't do enough work back in the day, I thought this looks like something that's being used in the dark web, so it's probably going to get shut down. So I didn't really look at it even further, until like, maybe 2012.
But 2012 was when I really dug into the details. And I felt like, okay, this thing is interesting, it might have a small chance, maybe 10% chance, 1% chance of doing something really great. And the upside might have been 1,000X. You know, back in the day, Bitcoin was like low double digits, right. And it was like, if something has a 10% chance of doing 1,000X, then the expected value is well in the positive. So I took a chance and it worked out pretty well.
And I got into Ethereum very early as well in the presale. So Ethereum, again, I got very lucky because Vitalik went to the same school as I did in Canada, Waterloo, but I'm four years older than him, so we never crossed each others’ path. But when I saw that these Canadians are, especially these students, or this dropout from Waterloo was starting this project that seemed semi-legit, I decided to support them. So that's how I got into Ethereum as well.
But anyway, that's like my sort of pre-full-time crypto journey. 2018, I started working professionally as a founding head of product at Messari. So I ran product, built out the technical team, and grew the company to like 20-30 people, cash flow positive. And I left about a year ago to start DeFi Alliance. Can tell you more about it later. But that's my story, my crypto journey.
Trading Assets
CR: Nice. So a couple of questions on that. So you did quant trading for 10 years. I mean, were you kind of in big financial institutions, and were you trading stocks, like what kind of trading did you do?
QW: Yeah. So the firms that I was at, they're very well known within the quant trading space, but the general public generally wouldn’t have known about them. Because they're prop trading firms, meaning they trade their own capital. And so they don't have to be public. They don't need to do a lot of marketing because they don't raise money from outside. So they're actually, generally very low profile. But they are like 5% of the entire US stock market, in terms of trading volume, like 5% market share, so they do a lot of volume. And I did that in New York and Chicago.
And personally, I traded US equities, and that includes cash, so basically like individual stocks, but also ETFs, Futures, Options. Occasionally, my strategies can be transferable to other asset classes, because quant trading is sort of like, you don't really have to understand or study the fundamentals, because you trade at more shorter term. And therefore, some of the market microstructure, some the qualitative patterns, can exist across multiple different asset classes. So the strategy sometimes can be transferable across asset classes. But primarily, I traded equities.
CR: And so, it's interesting that you came to look at crypto and I guess, Bitcoin at first, through this lens of equities trading. Or like, just traditional assets trading, and like you said, kind of quantifying or measuring how much the potential was. A very different approach from other early bitcoiners who looked at it as Bitcoin in a sort of hard money aspect, or more the ideological aspect. Or like, in the case of Ethereum, it was more of the tech potential, like the tech promise aspects. So it's interesting that for you, it was more just like a purely rational trading perspective that got you into crypto?
QW: Exactly.
CR: So what drove you to go full-time and join Messari? Like, what inspired you to make this big shift?
QW: I've just been obsessed with crypto for such a long time. And at some point, I have to do this full time, and 2017 was the year. But also, I didn't know exactly what was possible in crypto as a startup back in the day. There wasn't anything like DeFi, like the blockchain programming stuff was still very early. So I was thinking about maybe building a centralized company that provides a useful service and product. And given my background in trading and quantitative analysis, building a data service just made sense. Right? So that's how we started Messari.
CR: Nice. Cool. And throughout this time, you've continued to actively trade crypto and tokens, right?
QW: At Messari, I never had the time to trade. Like, building a startup, it is not easy. Like it's a 200% full-time job, like, you work 80 hours per week, and you just don't have time to study the market. So during my time at Messari, I primarily just did long-term investing, rather than short-term trading.
Nowadays, personally, I'm more intellectually interested in long-term investing. I do a little bit short-term trading, I tweet about some of the short-term views on Twitter sometimes. But even for that, my time horizon is not like intraday, it's more like over the time horizon of a few weeks or even months. So I would say it's like medium-term trading. I spend most of my time nowadays still investing, early-stage investing, and trying to understand the fundamentals.
DeFi Alliance
CR: So you left Messari to start the DeFi Alliance, can you talk more about that?
QW: Yeah, the DeFi Alliance, it's an open consortium of almost 100 entities, organizations in crypto now. So that includes a bunch of market makers, liquidity providers, exchanges, investors, and obviously, DeFi startups. And the way we started was about a year ago, that was before the Compound liquidity mining, the DeFi summer which started with the Compound liquidity mining. And some of the DeFi startups reached out to my partner and said, we really need institutional liquidity, where do we find those institutional liquidity providers?
And on the other side, we had some of the largest traditional financial services companies or some of the largest market makers trading firms in the world from the traditional finance world, like Jump Trading, TRW, CMT, like all these guys were looking to DeFi. They've been in crypto for a long time. They've been in crypto since like 2013, 2015. And they've always been ahead of the crowd, and started looking at DeFi well before the DeFi summer. And they want to basically learn more about DeFi. And so we saw an opportunity to bridge the gap between these two worlds and so we started DeFi Alliance.
And the first thing that we did was to create an accelerator program for the DeFi startups that need institutional liquidity. And we basically brought these two groups of people together, the trading firms basically provide their knowledge, their resources, their liquidity to the DeFi apps. And so we had 0x, Kyber, Synthetix, TokenSet, and a few others as part of our first cohort. We had over 100 applications for the first cohort, which basically instantly took off. We have not only market makers as mentors, but also some of the leading experts and token economics and products, in regulations, and so on, so forth, as mentors for the accelerator. So basically, you can think of us as the Y Combinator for DeFi, if that makes sense.
“The first thing that we did was to create an accelerator program for the DeFi startups that need institutional liquidity. And we basically brought these two groups of people together, the trading firms basically provide their knowledge, their resources, their liquidity to the DeFi apps.”
Institutional Investors
CR: Cool. So it's really interesting to me that big institutional market makers were already interested in DeFi as early as last year, or like before the summer. So right now. I mean, there's about $40B of value locked in DeFi, how much of that would you say comes from these players?
QW: It’s a good question. I don't really know, I haven't really studied. But I'm guessing, the thing with these traditional trading firms is that they care a lot about capital efficiency. So they generally don't put in a ton of money. They want to really maximize the return on investment. So I would imagine that the capital that they have in DeFi isn't that much. I would say probably well under 10% is my guess, but I can’t be sure.
CR: Okay. But I guess like, I don't really get that. Wouldn't you maximize your return by investing more money in the system?
QW: I mean, well, let's take a look at DeFi Pulse right now. Like where does that TVL come from?
CR: So mostly, Maker, Aave, Compound.
QW: Yeah, so these guys, they definitely don't have a ton of Ether in Maker. They may have some value locked in Aave for leveraged trading, but then again, the lending protocols are still capital inefficient, you have to over-collateralize. There are just easier ways for them to do leveraged trading, they can do that on an exchange, they can do that through OTC. Same thing with Compound.
Curve, so Curve is different because they can park some of their stablecoins in Curve and earn some yield. So I can picture them putting some money in Curve. Uniswap, Sushi, Synthetix, like all these AMMs, I'm not entirely sure, but I don't think they have a lot of money as LPs, because liquidity providing in Uniswap, Sushi, like in these AMMs is very inefficient from a capital point of view. But they could be deploying some money for arbitrage. So arbitrage in between Uniswap and Sushiswap. Or arbitrage in between Uniswap and Binance. And the arbitrage itself doesn't require a ton of money being locked into the protocol.
It's more like you leave a little bit of money in the protocol and you turn over the capital very fast, very frequently, like multiple times per day. So again, from a capital efficiency point of view, they don't have a ton of money in these protocols. So I'm guessing Curve might be the number one protocol in terms of TVL. Same thing with Yearn. Like they could be parking a lot of money in Yearn or Alpha Finance, Harvest, like all these yield generating, yield optimizers.
“I'm guessing Curve might be the number one protocol in terms of TVL [for institutions]. Same thing with Yearn. Like they could be parking a lot of money in Yearn or Alpha Finance, Harvest, like all these yield generating, yield optimizers.”
CR: That's interesting. Okay. So the way that you think institutional players are using DeFi right now isn't so much to do leveraged trading via collateralized loans, but as a way to park their stablecoins and earn yield?
QW: That's my guess and it's an educated guess. But I don't have hard evidence for that.
Ether Adoption
CR: So talking about institutions. Because you have a connection with them via the DeFi Alliance, I'm also interested in your take on institutions and Ethereum. Because this year, and last year, we've seen this growing wave of big corporations and big investors, even big banks, saying they're buying Bitcoin or they're thinking of offering Bitcoin to their clients. The same hasn't happened with Ethereum. So I'm interested in your take on whether, I mean, do you think we'll start seeing the same thing happen with ETH too and institutions becoming interested in ETH as an asset or no, not yet?
QW: Yeah, this is a really good question. And in fact, I have a debate with Lyn Alden tomorrow on this exact topic. I haven't done my homework, unfortunately, yet. But given what I currently know, well, it is definitely the case that there's far more institutional adoption of Bitcoin than Ethereum. And part of that is really because of the macro environment. There's a growing inflation narrative and obviously the fiat debasement narrative. So Bitcoin solves that problem by being this limited supply asset, hard asset.
Ethereum could become that kind of asset in the next few years. Ethereum might have a deflationary narrative with the EIP 1559, but it's not there yet. So if Ether itself doesn't solve this immediate problem for these corporations, and traditional asset managers, that's why it's lagging behind.
But we know for a fact that some institutions are looking to Ethereum, even DeFi, and they've bought Ether and DeFi, and those are some of the most, I guess, adventurous institutional investors, primarily, family offices, hedge funds, who are willing and able to take risks. By able, I mean it's within their mandate to take risks. And that's really obvious, because Ethereum is the number two crypto asset, right after Bitcoin, and it's sufficiently differentiated from Bitcoin, and is obviously the most used crypto network. Even ahead of Bitcoin, like by many measures, Ether is “used” more than Bitcoin. So it's very natural for these institutions to look into Ether the moment they've bought Bitcoin. Right?
Institutional adoption of Ether partly is here, among the family offices and hedge funds. In terms of corporate adoption, and large, risk-averse asset managers, I think Ether is, I would say, probably not there yet. I would say, I don't know, maybe it takes maybe a few months or a few years, but I'm not sure.
“Institutional adoption of Ether partly is here, among the family offices and hedge funds. In terms of corporate adoption, and large, risk-averse asset managers, I think Ether is, I would say, probably not there yet.”
CR: What do you think is missing?
QW: It's more about like, why are people buying Bitcoin than why are people not buying Ether? Like it's not missing anything, both are risky. But people are buying Bitcoin because it solves a very immediate problem. Without this macro environment that we're in, institutions wouldn't be buying Bitcoin. Bitcoin is just born at the right place at the right time. Ether, on the other hand, like in many people's eyes, is still rather a venture investment, a venure-like asset class.
But I can imagine that once the Ethereum community really figures out the monetary policy and the EIP-1559 that we're going to see a narrative around Ethereum being a deflationary asset. And this can be very attractive to the institutional managers. But we'll see. My views update all the time, constantly. For now, I don't have a lot of evidence that corporations are buying Ethereum, but things can change very quickly.
“It's more about like, why are people buying Bitcoin than why are people not buying Ether? Like it's not missing anything, like both are risky. But people are buying Bitcoin because it solves a very immediate problem.”
CR: Yeah. No, I don't think we've seen that, at least, they're not announcing it or anything. Okay, so one way for institutions to come to DeFi could be this narrative, competing with Bitcoin as a store of value with EIP 1559. Do you think another way into it could be just like the growing adoption of DeFi?
QW: Yeah, absolutely. I think as DeFi grows, some institutional investors will want to get exposure to DeFi via Ether and for many reasons. One reason is that they just don't have enough time to dig into DeFi, it’s too complex for them, but rather to hold an index, or a proxy, to DeFi. And the best proxy to DeFi is Ether, because Ether is very liquid, and most DeFi is built on Ethereum. And another reason could be that the institutional support isn't there for DeFi yet. Like Sushi is still not listed on Coinbase, for instance, right? I mean, they added Sushi in Coinbase custody, but not as a trading pair yet. So potentially, the institutional support, like custody trading may not be there yet. So there's both a logistic hurdle and an educational hurdle, in order for people to buy Ether instead of Bitcoin.
CR: Yeah, got it. Okay, and then I'm interested in digging into your own investment thesis and strategy. So, you mentioned earlier in the conversation that you're more of a long-term, fundamentals driven investor. Is that right?
QW: I spend more time on that. I like to think about the long term. Short term, I do some of that stuff as well but not as much as the long term.
Preferred Assets
CR: And with DeFi, can you say like, which projects do you like, which tokens are you holding? And besides holding just like specific DeFi tokens, are you also using different protocols as well?
QW: Yeah. Obviously, actually, the two questions are very much related, because I much prefer holding the tokens of which I use. Like if I use Uniswap a lot, I tend to really appreciate the product and tend to understand why this thing is valuable. So I use and hold Sushi, Uniswap, Aave, Compound, Terra, their token called LUNA, and quite a few others. But for me, right at this moment. I think Sushi is just unbelievable. It's just unbelievably cheap, and it's so liquid and the team is legit and the user base is growing.
So I just love Sushi. And Sushi has gone up like 10X, but I think it's still very much... Sushi has gone up 10X, outperformed almost everything else in DeFi, and yet is still one of the most undervalued assets compared to the other DeFi assets, if not the most undervalued. So I just love Sushi, like they generate so much cash flow and I'm just a big fan of it.
“Sushi has gone up 10X, outperformed almost everything else in DeFi, and yet is still one of the most undervalued assets compared to the other DeFi assets, if not the most undervalued.”
The other one I recommend people look at is Terra. I just keep talking about Terra, because Terra is one of the very few DeFi products that has a non-speculative use case. Most DeFi products, they serve speculative activities. Which is totally fine. But the issue with speculation is there is a little bit of circular value accrual logic. Like, the more people that trade DeFi, the better fundamentals the DeFi assets are, because they serve these trade activities. And the better fundamentals, more people want to buy the DeFi assets, and then that generates more trading, more speculation, more lending, and borrowing. So DeFi, by and large is very reflexive, from the fundamentals and price point of view.
Terra is different because they have a product that is a stablecoin that's being used for payments. And I think last time I checked, 4% of South Koreans have Terra, the product, installed, and are users of this product. Terra is one of the very few products in DeFi that are used for real-world economic activities. And so the value accrual is not entirely circular, or reflexive, or speculation-based. So I'm a big fan of Terra. I can say that the price is kind of high nowadays. Like, it's not as clear as Sushi in terms of value from a valuation point of view, but I'm just a big fan of the product itself.
“Terra is one of the very few products in DeFi that are used for real-world economic activities. And so the value accrual is not entirely circular, or reflexive, or speculation-based.”
CR: So Terra is a stablecoin, and LUNA is a more volatile token?
QW: Terra is the name of the platform. LUNA is the name of the governance token/ token that gives right to cash flow. And then there's a stablecoin. That's different from that.
CR: Okay. So does this LUNA kind of get fees from the use of this stablecoin?
QW: Yep. Exactly. Yeah from transaction fees, and a bunch of cash flow from other use cases as well. So you might have heard of the Mirror Protocol.
CR: Yeah.
QW: Mirror Protocol is built by the same team. And they're basically a synthetic asset platform, similar to Synthetix. And in fact, maybe a week or two ago, they did more volume than Synthetix. They launched, like maybe a month ago. On the tail end of the GameStop and all these retail traders being shut down by Robinhood, which is a huge value proposition for Synthetix asset trading. So, Mirror Protocol supports a bunch of US stock trading. So I think they're doing great and their trading volume is on the similar order of magnitude as Synthetix.
“Mirror Protocol is built by the same team. And they're basically a synthetic asset platform, so similar to Synthetix. And in fact, like maybe a week or two ago, they did more volume than Synthetix.”
But anyway, so I was going to say, the activities and the fees generated in Mirror Protocol, part of that also accrues to LUNA, the Terra platform.
CR: Oh, interesting. Yeah. I didn't realize they were from the same team. We covered Mirror right after the GameStop thing explosion. And it's amazing how quickly they grew right after launch. Wanted to get a little bit into Sushi. You said you like it because they're generating a lot of cash flow. Can you explain that a bit more why you think it's so undervalued?
QW: Well, so number one, valuation is always relative. You can't say something is absolutely undervalued. You can only say it's undervalued relative to peers. So if you look at Sushi, and obviously, I think the best comp is Uniswap. Sushi, I don't know the exact numbers, but if you look at the cash flow, versus the fully diluted market cap, Sushi is a lot more attractive than Uni. You can also look at the trading volume versus the fully diluted market cap, Sushi is also very attractive relative to Uni.
Other than UNI, you can look at some other like decentralized exchanges, but they're less clear of a comp. Like you can look at 0x, for example, I'm a big fan of 0x. I think 0x is the most under-discussed decentralized exchange in the space. And I'm an investor. But even like, relative to 0x, Sushi is undervalued from a cash flow point of view and from a trading volume point of view.
You can even look at Sushi relative to the upcoming Coinbase IPO, which currently is trading in the private market, maybe like at least $50 billion, but maybe like $90 billion. The private market isn't super liquid, so the valuations can change a lot. But if you compare Sushi versus Coinbase, it's very undervalued.
Anyway, so you can look at a bunch of comps, that's generally how I do relative valuation. But you need to understand which ones are the best comps, which ones are close enough comps, and which ones are not the best comps. But the problem with relative valuation is that at the end of the day, valuation is determined by the market. And if you ask the market participants in crypto, if you ask 10 different crypto funds, there will be 15 different valuation methodologies. So everyone values these things differently. So it's very subjective, and it's very much of an art. And it's not an exact science. But it seems like a lot of people are rallying around relative valuation of decentralized exchanges in terms of trading volume and in terms of cash flow. So as this consensus forms over time, it sort of creates a self-fulfilling prophecy for this kind of methodology.
“But the problem with relative valuation is that at the end of the day, valuation is determined by the market. And if you ask the market participants in crypto, if you ask like 10 different crypto funds, there will be 15 different valuation methodologies. So everyone values these things differently. So it's very subjective, and it's very much of an art.”
CR: I want to ask you briefly about cash flow for DEXs. Because I've seen this argument that you can’t really consider the fees that they get actual cash flow because they don't go to the platform and they go to the LPs. What do you think?
QW: That's absolutely a good argument. Because if you raise the fees, then you incentivize more LPs to provide liquidity and so there's more liquidity, and then as a result, there could be more trading. Right? But if you remove the fees, the opposite happens. So the fees directly impact the trading volume itself. So you cannot really consider the fees as really like revenue for the token holders. So that's absolutely a good argument. But then again, we're still so early and people have not really formed consensus around these kinds of arguments. So it's still very hard to say definitively.
“So the fees directly impact the trading volume itself. So you cannot really consider the fees as really like revenue for the token holders. So that's absolutely a good argument.”
CR: Right. Yeah. So I guess, like, might be best to define it as just fees relative to market cap rather than cash flow relative to market cap?
QW: Sure.
CR: And then it's TBD whether that will actually go to token holders directly?
QW: Yeah. And this is partly another reason why Uniswap and Sushi are better comps for each other than Sushi and 0x, because the fee models are very different between Sushi and 0x. So it's very hard to compare the fees side by side. And that's why I also like to look at the trading volume between the different platforms, because their trading volume is a bit more comfortable than fees.
CEXs versus DEXs
CR: And then on this topic, I saw you tweeted recently that you think exchange coins are cheap relative to DEXs, do you still think that?
QW: I still think that. I tweeted that this morning. I mean, if you look at the full valuation of Uniswap, it's about $20 billion. And if you look at FTT, and BNB, FTT is, I think it's well under $20 billion. BNB might be slightly over, I can't remember the exact numbers. But both Binance and FTX do way more volume than Uniswap. Their derivatives volume is just really, really big, it's much bigger, maybe an order of magnitude bigger. Again, I don’t have the exact numbers, but I think it's an order of magnitude bigger, and yet they're priced in the same order of magnitude. So I think they're really cheap compared to the DEXs.
“But both Binance and FTX do way more volume than Uniswap. Their derivative volume is just really, really big, it's much bigger, maybe an order of magnitude bigger… So I think they're really cheap compared to the DEXs.”
But the counter argument is the DEXs have this DeFi narrative behind them, and they represent a permissionless ethos of crypto, they're more composable. There could be a lot more things that can be more easily built on the DEXs rather than on decentralized exchanges. They're scalable, they have less burn. So you can imagine that the valuation, all else equal, the DEXs valuations can be higher than the centralized exchanges.
CR: Yeah. No, that's super interesting that DeFi DEX tokens are valued at the same magnitude as centralized exchanges. One because obviously, centralized exchanges are processing a lot more volume, many times more volume than DEXs, but also, because I have this, and I think there's just this general perception that DeFi is still just so undervalued relative to the rest of the crypto market.
QW: Yeah. So I mean, the DeFi tokens should also have the growth premium relative to the centralized exchanges. Because the starting point is a lot lower for DEXs than for them for something like Binance. DeFi can grow a lot faster than Binance can grow, just because they're starting at a lower starting point. So there is a growth premium as well for the DEX tokens.
“.DeFi can grow a lot faster than Binance can grow, just because they're starting at a lower starting point. So there is a growth premium as well for the DEX tokens.”
And another aspect is decentralized exchanges, they have two components. They have a token component, and they have the equity component. So a lot of the value actually accrues to the equity itself, rather than to the token. So the token value is being diluted, whereas you don't have the same problem with DEX tokens, right, all the value should be accrued to the token itself. I mean, obviously, there's… They also have equity, but in theory, the cash flow can go to the token holders.
So these are some of the arguments against centralized exchanges, or exchange tokens being undervalued against DEX tokens. But like I said, in my tweet, valuation is just a meme. Right? And if the market bites this meme, then the mispricing will go away. And I think the decentralized exchange volume is so much bigger than DEX volume, that I think at least some of that pricing discrepancies can go away. I think it doesn't completely account for the things that we just discussed, the growth premium, the equity valuation, etc.
“...valuation is just a meme. Right? And if the market bites this meme, then the mispricing will go away.”
CR: Meaning that centralized exchange tokens should rise relative to DEX tokens?
QW: That's my thesis. It may or may not happen. Like the market may not agree with my thesis. But that's what I'm hoping to happen.
Memes Underpin Traditional Valuation Metrics
CR: And on this topic memes, we had a story today with the term “memenomics”, which I think is kind of becoming more and more prevalent in markets. And I saw you also saying something similar to this. Why do you think this is happening now, and do you think it's becoming a meme-driven market? Is it something new? Or has it always been the case? Or are we just kind of noticing this more now because of WallStreetBets and crypto? I don't know.
QW: I don't think it's new. I think the equity market is also a meme. Especially since COVID, like the equity market is just still incredibly overvalued relative to the past. Like, if you look at all the valuation metrics for the equity market, it's at all-time high. Obviously, that's primarily driven by the money printing. But it just means that the valuation metrics don't really matter anymore. Like the equity market is just a total meme to me, and people find new ways to justify the valuation. And the moment people do that, like by definition, that's a meme. So I don't think there's anything new about crypto. Like, obviously, crypto is probably more “mimetic” to a large extent. But it's not really new.
“But it just means that the valuation metrics don't really matter anymore. Like the equity market is just a total meme to me, and people find new ways to justify the valuation.”
At the end of the day, people find valuation and pricing, all these things are extremely subjective. I don't care what anyone says about, you know, cash flow, P/E like all these “objective” valuation metrics. All these are excuses or ways that people use to justify the market price and the market valuation. All these things are subjective. The only difference between the equity market and crypto is that the equity market has a much longer history of people forming consensus around these valuation metrics. Like basically, we've had these like PE and value investing since the days of Benjamin Graham, who's the teacher of Warren Buffett. So that has like a century-old history. Crypto is a decade-old market, so the memes and the consensus have not been formed yet. But at some point, they will. And basically, what I'm saying is, we're seeing a lot of memes and at some point, the memes will solidify, will ossify over time, if that makes sense.
“Crypto is a decade old market, so the memes and the consensus have not been formed yet. But at some point, they will.”
CR: So does that mean to you all the common valuation metrics for traditional markets like PE, to you, are those the memes of traditional finance?
QW: Exactly. That's exactly what I'm saying.
CR: It’s a funny way of looking at it.
QW: And people needed ways to price DeFi assets as well. Right? So then some people ported those traditional finance metrics such as PE or price sales into DeFi to justify the valuation for DeFi. Which, I mean, it's reasonable, it's rational. But at the end of the day, it's still very subjective and mimetic.
CR: Right. Okay, so things like the 21 million cap for Bitcoin, those are like memes that are driving crypto now and that the market is solidifying around right now?
QW: I mean, the 21 million, I don't think that itself is a meme, like, it's a hard fact. Like, it's literally written there. 21 million, not exactly 21 million, but it's written there. The meme with Bitcoin at the moment, I think, is the comparison to gold, which is $10 trillion, and right now Bitcoin is 10% of that. So people use this meme, this digital gold meme to justify Bitcoin’s valuation, which again, is rational. It's reasonable. Right?
CR: And just so that we're kind of on the same page, investing around memes basically means simplifying a concept, right, and having people rally around that simplified concept. So like in the case of Bitcoin, that's digital gold; for Ethereum, that was like, world computer. And these are kind of like the simplified arguments for or against crypto that investors use as arguments to buy all these different tokens. It seems like a hype-driven way of investing, just like buying a token because it has an interesting narrative, instead of using more, like, hard metrics to look at these things.
QW: Yeah, I mean, it's not unique to crypto. It has been for a while in the stock market as well, right? Especially, I guess, since the internet, since the emergence of internet stocks, which don't generate cash flow, at least in the early stage, people don't know how to price these things based on cash flow, because there's no cash flow. So people need to find other ways to price these things. So people start looking at sales, not the bottom line, but the top line. And people then start looking at users, like daily active users. People need different ways to justify the valuation and to price them.
Like humans just have this need to find excuses to justify valuations for certain things. And sometimes these valuations, these memes, just take off, they just go viral and people start believing in it. Like this is unrelated. But crypto influencers on Twitter, they are a necessary component of the market. They're a necessary component of the price discovery mechanism. Because crypto influencers, they find a bunch of different ways to justify evaluation for DeFi assets, for Bitcoin, for Ethereum. And some of them are really good at articulating their valuation metrics, their method. And then when people read these things, and if they find it rational, reasonable, they'll start believing in it. And so the consensus starts forming around these valuation metrics. So these crypto influencers, for me, they're critical components of the price discovery mechanism.
“...crypto influencers on Twitter, they are a necessary component of the market. They're a necessary component of the price discovery mechanism.”
CR: So interesting. Can you remember a time when you were influenced by a Twitter personality, and it made you change your mind about a token to the point of investing in it?
QW: Like all the time. I actually, like, this might surprise you, but I don't actually do a ton of proprietary research. I just read people's stuff, and I try to basically aggregate information, synthesize people's ideas and insights rather than doing my research.
CR: Oh hopefully, The Defiant is useful for that.
QW: Of course. Of course, it is.
Top of the Cycle
CR: Nice. And then to wrap up, it looks like in the middle of a huge crypto bull run, Bitcoin just crossing 50K. And everyone says it's impossible to time the market, but what's your take on what's going on right now? I mean, are you selling Bitcoin and ETH at these levels? Are you buying more? And do you have a price target for the end of the year for ETH and Bitcoin?
QW: I mean, this question depends on your time horizon. Right? You can’t be very bullish long term while being short term bearish, it's entirely possible. I think, for most retail investors, I recommend being long-term because you're not going to beat the market in the short term. But it's a lot easier to beat the market or at least match the market in the long term.
So from a long term point of view, by long term, I mean like over the next maybe 6-12 months, you definitely do not want to sell Bitcoin at $50,000, you definitely do not want to sell Ether at $1,800, you definitely do not want to sell the blue chips at this price. I'm 90% confident that we're going a lot higher. Some people are getting anxious about the valuation. People think that we're in a bubble, things are getting crazy, they’re frothy, and there are some top signs, top things. Like with all these celebrities talking about crypto, Lindsay Lohan and all these NFT's and stuff like that. I don't think we've seen anything yet. It's going to get a lot crazier.
CR: For this year?
QW: We're getting a lot crazier this year. We haven't seen anything yet. So hold your long-term bag.
“We're getting a lot crazier this year. We haven't seen anything yet. So hold your long term bag.”
CR: Why do you think we're just starting? And again, like, what's your end of year target?
QW: What we're not just starting, for sure. I mean, we've gone up 10X from exactly a year ago, so we're not starting for sure, but we're definitely not near the top at all. I can't give a target for the end of year, I'm going to be so wrong. And I can only say that the top for this cycle is going to be a lot higher than where we are currently. It's probably going to be at least over $100,000 at the very least, for Bitcoin, and probably $5,000 for Ethereum, I'm 70-80% confident about that.
CR: Okay. But what makes you say that?
QW: I mean, Michael Saylor just pitched Bitcoin in front of thousands of corporate executives, and those people haven't bought yet. They need to set up their logistics. They need to convince their board to buy Bitcoin. 499 companies in the Fortune 500 have not bought. Maybe some of them are secretly buying. But the vast majority of them have not bought. A vast majority of pension funds, I'm not aware of any pension funds that have direct exposure to Bitcoin. I'm not aware of any nation state that has bought Bitcoin except for maybe Iran, I have no idea. We're still so early in the institutional adoption and in the nation’s adoption. We're nowhere near the top.
“We're still so early in the institutional adoption and in the nation’s adoption. We're nowhere near the top.”
CR: True. Okay, so it's institutional adoption why do you think will continue driving this bull run?
QW: Absolutely. It's definitely going to be institutions for Bitcoin and the retail will follow the trend. Retail will probably dip their toes into Alts. So retail will drive the Alt bull market and partly, the Bitcoin bull market as well. But Bitcoin is primarily institutions.
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